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December 31, 2020

Recent Bad Faith Litigation Decisions

Insurance carriers don’t always do what they have agreed to do. Carriers, from time to time, deny insurance coverage, or provide a defense under a reservation of rights. Other times, the insurance carrier will fail to settle a claim within policy limits, even though the insured’s exposure if far greater than the coverage. These are instances were the insurance carrier is acting in “bad faith.”

In Missouri, RSMo 537.065 allows parties to agree, in cases of personal injury, death, and bodily injury, that a plaintiff will only collect on a judgment from the defendant’s insurance carrier. 537.065 was amended in 2017 to protect insurance carriers acting in bad faith. It added a provision that required the insurance carrier to be notified of such an agreement. It gave the carrier the right to intervene within 30 days. A few cases have recently addressed this change.

In Knight, State Farm refused to defend the underlying defendant in a lawsuit over a watercraft accident. Knight by and Through Knight v. Knight, 2020 WL 3966759, 1 — S.W.3d – (Mo. App. W.D. 2020) (transfer denied November 24, 2020). The parties entered in to a 537.065 agreement then arbitrated the case, where plaintiff was awarded $6 million. Id. After the arbitration, defendant notified State Farm of the agreement. State Farm was then granted leave to intervene. It filed an answer to plaintiff’s amended petition and a motion to vacate the arbitration award. Id. at 3.

On appeal, State Farm argued that the 2017 amendment to § 537.065 “necessarily gave insurers the right to contest the insured’s liability, and the claimant’s damages, on the meritswhatever the status of the litigation at the time of the insurer’s intervention. Id. at 5 (emphasis in original). Id. The court squarely rejected that argument. Id. The statute merely requires notice of an agreement “before a judgment may be entered” and an opportunity to intervene in “any pending lawsuit” for thirty days thereafter. “It is well established that an intervenor must accept the action pending as he finds it at the time of intervention.” Id. at 8 (emphasis in original; cleaned up). The court’s analysis continued:

“The statute does not specify a time limit within which an insurer must be notified of a § 537.065 agreement – other than that such notice be provided before the entry of judgment. The statute does not require that the insurer must receive notice, and an opportunity to intervene, before the insured’s liability or damages are determined – it only requires that notice be provided “before a judgment may be entered.”7 The statute does not require that a lawsuit be pending at the time that an insurer receives notice of a § 537.065 agreement. Nor does the statute require that litigation between an injured party and the insured be stayed after execution of an agreement, or after notice to an insurer, until the insurer is permitted to intervene, or until its right to intervene expires.”

Id. at 6. The General Assembly could have stated an insurance carrier could intervene and defendant on the merits but chose not to. Id. at 7. The court can only implement the statute the General Assembly actually enacted. Id. The court further noted that if State Farm was allowed to contest liability when the arbitration award was being enforced, it would have greater rights than the defendant because when being enforced, defendant could not contest liability. Id. at 9.

When State Farm intervened, the only question was whether to confirm or vacate the arbitration award. Id. at 11. State Farm was not permitted to relitigate liability or damages. Id. The court will only vacate upon showing of corruption, fraud or other undue means. Id. at 12 (citing RSMo § 435.405.1(1)). The arbitration was not based on “undue means” because the defendant agreed to participate in it. Id.

Prior to Knight, the Western District decided Britt and Aguilar. In Britt, American Family the appellate court affirmed the trial court’s denial of the carrier’s motion to intervene. Britt v. Otto, 577 S.W.3d 133, 136 (Mo. App. W.D. 2019). The case addressed a failure to settle within policy limits rather than an outright defense rejection. The pertinent dates include:

  • On March 7, 2018, defendant informed American Family of its .065 agreement with the plaintiff. Id. at 137.
  • The next day, the parties entered into that agreement.
  • On March 22, 2018, arbitration was conducted. Id. at 138.
  • On April 6, 2018, an arbitration award was issued. Id.
  • On April 13, 2018, Plaintiff moved to confirm the arbitration award. Id.
  • Defendant sent the award to American Family on April 16, 2018 and demanded payment. Id.
  • On April 19, 2018, American Family moved to intervene. Id.

The arbitration award concluded that American Family rejected the original settlement offer. Id. The court denied American Family’s motion to intervene and confirmed the arbitration award. Id. at 139. American family was not allowed to intervene because the action to confirm arbitration was filed more than thirty days after receipt of the notice the parties entered in .065 agreement. Id. at 140. This presumed, although the issue was never reached, that an action to confirm arbitration was a “pending lawsuit involving the claim for damages.” Id. The court likewise did not take a position on whether arbitration was a “pending lawsuit” in the context of 537.065.

In Aguilar, the court of appeals, again, affirmed the trial court’s denial of the carrier’s motion to intervene. Aguilar v. GEICO Casualty Co., 588 S.W.3d 195, 196 (Mo. App. W.D. 2019). A claim was reported, and GEICO denied coverage. Id. at 197. The follow dates were pertinent:

  • August 2017: Plaintiff filed suit;
  • February 208: Plaintiff filed for default and GEICO entered;
  • March 2, 2018: defendant rejected GEICO’s defense and entered into an .065 agreement;
  • March 7, 2018: GEICO filed a motion to intervene;
  • March 15, 2018: Plaintiff dismissed her claims
  • June 2018, the parties agreed to arbitrate and July of 2018 a $35M award issued;

Id. at 197. GEICO’s motion to intervene in the action to enforce the arbitration award was denied on October 24, 2018. Id. “While GEICO timely filed a motion to intervene in the personal-injury action, that action was voluntarily dismissed and the parties proceeded to arbitration.” Id. at 199.  Because the motion to intervene in the arbitration enforcement action was far outside the statute’s 30 day limitation, it was untimely. Id. The court, again, rejected the carrier’s argument that it had a right to contest the findings of fact and conclusion from the arbitration award, noting the carrier “had every opportunity to enter a defense of [defendant] without reservation and thus to litigate such matters, but chose not to do so.” Id. at 201.

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